Buckeye, Hyundai, Majestic Star to market new deals; secondary higher, though trading limited

By Paul Deckelman and Paul A. Harris

New York, Sept. 2 - It was back to work in high-yield land on Tuesday, with both the Labor Day holiday break - and the summertime season which Labor Day marks the unofficial end of - now in the rearview mirror and ample liquidity waiting to be put to work.

And put to work it was, as three issuers - Buckeye Technologies Inc., Hyundai Motors and Majestic Star Casino LLC - were heard by market participants to be readying roadshows for upcoming new deals totaling $770 million, although that sum is just a drop in the bucket compared with the more than $3 billion of net new money which was heard to come into high-yield mutual funds last week - and the funds only represent a small portion of the overall high yield market's assets, so it can be assumed that the liquidity infusion for the market as a whole was even greater.

On the secondary side, as many traders had predicted last week, the big inflow number emboldened buyers, who came in and aggressively bid up issues, at least during the morning. But some of those bid levels were heard to have pulled back from their peaks by the day's end and traders said the actual amount of bonds traded was relatively light - because there was little paper actually for sale out there.

"There was not a lot of real trading," a trader said, "but levels were stronger. If you weren't in today [Tuesday] and you come in tomorrow [Wednesday], you may see things that were at 90 last week quoted at 93 or 94 now."

In the primary, a Friday roadshow start appears to be in the offing for Majestic Star Casino LLC and Majestic Star Capital Corp.'s $270 million of seven-year non-call-four senior secured notes, which are expected to price during the week of Sept. 15.

As with the Majestic Investor Holdings LLC $152.632 million of 11.653% senior secured notes due Nov. 2007, which priced in Dec. 2001 at 95 to yield 12 7/8%, the new notes from the Gary, Ind.-based gaming company will come via bookrunner Jefferies & Co., with proceeds to fund the tender.

Meanwhile the roadshow starts Thursday and runs through Sept. 15 for Buckeye Technologies Inc.'s $200 million of 10-year non-call five senior notes. Citigroup and UBS Investment Bank are joint bookrunners for the deal from the Memphis-based manufacturer and marketer of specialty cellulose and absorbent products.

And in the emerging markets a roadshow got underway Monday for Equus Cayman Finance Ltd.'s offering of approximately $300 million of five-year senior guaranteed notes (Ba1/BB+).

The issuer is a special purpose entity of Hyundai Motor Co., which will guarantee the notes.

The deal is expected to price on Friday via Credit Suisse First Boston, JP Morgan and Morgan Stanley.

As was the case in last Friday's abbreviated ghost-session, chatter among sources in the more fully-staffed post-holiday high-yield market tended on Tuesday to focus on last week's massive inflow.

"With that inflow I think you are almost certain to see some new deal announcements because people are ready," said one sell-side official Tuesday.

"The bankers always tell issuers 'You want to be the first one out after Labor Day so that you get the most attention from the market place,'" added the source.

"And with three-and-a-quarter billion coming in like that, it's going to take a lot of deals to absorb it."

Another sell-sider said that all signs point to an increase in new issuance in the wake of market softness during late July and much of August.

"People are returning from vacations," said the source. "And of course you have that funds flow number. And trading levels are up over the past couple of weeks, which attracts new issuers.

"We could well see things begin to pick up."

In the Sept. 2 issue of Banc of America Securities' Situation Room report David Goldman, that institution's head of debt research, and Jeffrey A. Rosenberg, head of credit strategy research, also make note of the massive inflow to the high yield mutual funds.

"In an otherwise quiet week for the speculative grade market, Thursday's report of High Yield mutual funds receiving a record-shattering net inflow of $3.3 billion during the latest week dominated the headlines," wrote Goldman and Rosenberg on Tuesday. "While High Yield participants typically consider billion-dollar-plus flow figures to be significant and worthy of attention, the latest weekly inflow was more than twice the size of the previous record inflow of $1.56 billion, set exactly one year ago during the week ended August 29, 2002. The latest inflow came at the heels of five consecutive weeks of net redemptions that included one that was over $2 billion and two that were over $1 billion. While the latest cash influx was short of bringing the month-to-date figures back into the black, the net cash outflow for the month has now been reduced to about $690 million. Year to date, High Yield funds have received a net cash injection of $21.8 billion (include both funds reporting asset weekly and those reporting asset monthly), surpassing the 2002's full-year fund inflow by almost 90%.

"The mammoth inflow and the lack of speculative grade new issue supply helped set a strong tone in the secondary market, with the BAS High Yield Broad Market Index advancing 1.18% for the week ended August 29 and boosting its month-to-date gain to 1.31%," they added.

And one source told Prospect News that the signs of strength in high yield may be setting the stage for a revival story: there has been some speculation that Charter Communication Inc. would revisit the high yield and convertible markets soon.

The troubled St. Louis-based cable company, which postponed its $1.7 billion two-tranche notes offering (CCC-) on Aug. 14, citing market conditions, is expected by this source to be reviving that offering, or possibly reforming it into a split junk bond/convertible deal.

Back in the secondary market, Sierra Pacific Resources was a name in the news, warning that it could be pushed into bankruptcy following a court ruling last week in a case which had pitted the Reno, Nev.-based utility operator against the already bankrupt energy concern Enron Corp.

A New York federal bankruptcy court judge overseeing the case of Enron Power Marketing Inc., a unit of the Houston-based energy trader, granted a motion Thursday for summary judgment against Sierra Pacific's two utility subsidiaries, Nevada Power Co. and Sierra Pacific Power Co. The case relates to power contracts between the Sierra Pacific units and the Enron subsidiary, which were terminated in May 2002.

Enron's unit filed for about $200 million against Las Vegas-based Nevada Power and $87 million against Reno-based Sierra Pacific Power

That caused Sierra Pacific to warn in a filing with the Securities and Exchange Commission that any requirement that its utilities be forced to pay the claims "could make it difficult for one or more of Sierra Pacific Resources, NPC or SPPC to continue to operate outside of bankruptcy."

That caused Moody's Investors Service - while affirming the parent company's unsecured rating at B2 and its utility subsidiaries at Ba2 - to change its outlook for the company's debt to negative from stable, while Standard & Poor's said it had placed the B+ corporate credit ratings of Parent Sierra Pacific and the subsidiaries on Credit Watch with negative implications.

All of that sour news caused Sierra Pacific's bonds and those of its units to defy the generally upward trend of Tuesday's market; the bonds were quoted down about four points across the board, with the parent holding company's 8¾% notes due 2005 at 96 bid, 98 offered; the Nevada Power secured 8¼% notes due 2011 at 92 bid, 95 offered and its 9% mortgage notes due 2013 - issued just last month - at 98.5 bid, 100.5 offered. Sierra Pacific Power's secured 8% notes due 2008 were at 97 bid, 99 offered.

But that kind of downturn was relatively rare and was obviously very issue-specific, linked to bearish news.

Overall, traders said, names were being quoted up strongly - at least a point or so for most of them - although again, the amount of actual trading going on was anybody's guess.

"We had this huge inflow last week, and as a result, we saw a lot of bonds trade up in the morning, a point, a point-and-a-half, and then come in during the afternoon," one said, "but basically, there was no paper out there to buy. "

He saw just about everything (other than such notable exceptions as Sierra Pacific) "bid better on the inflows" and on the strongly higher stock market (all three major indexes - the Dow Jones Industrial Average, the Nasdaq and the S&P 500 - set new 52-week highs, with the Dow up 107.45 at 9,523.27, the Nasdaq up 31.03 at 1,841.48 and the S&P 500 up 13.98 at 1,021.99).

But while there was a lot of quoting upward, "everyone who had paper was hanging onto it. No one was a seller. They all think it's going to go higher."

Among the names he saw better was Nextel Communications Inc., whose 9 3/8% notes due 2009 were at least a point better, at 107 bid, 108 offered; at another desk, the 9 3/8s were even better, at 107.75 bid, although there it was thought to be only a three-quarter-point jump from Friday's level; Nextel's 9½% notes due 2011 were half a point better at 109.5 bid and its 7 3/8% notes due 2015 were up a point at 101.

Nextel debt had also been quoted higher in very thin trading on Friday, on a news report that legendary billionaire investor Warren Buffett's Berkshire Hathaway Inc., and two of its insurance subsidiaries, had had accumulated nearly $500 million of the Reston, Va.-based wireless operator's bonds and preferred stock in the six months ended June 30 - seen by the market as a vote of confidence in the high yield wireless company by one of the most respected investment aces in market history.

A market source said that Nextel was not the only wireless junker that was higher Tuesday, although it certainly was the most prominent name; he quoted US Unwired Inc.'s zero-coupon notes due 2009 at 58.5 bid, a gain of three points.

Airline issues were seen improved at several desks, in line with a general rise in the sector's stocks, with both Northwest Airlines and Delta Air Lines shares up more than 11% on the day.

On the bond side, Northwest's 7 7/8% notes due 2008 were seen up better than four points, at 73.25 bid, while Continental Airlines' 8% notes due 2005 were up a more moderate two points at 91. Delta's bonds were "slightly better," a trader said, its 8.30% notes due 2029 advancing to 62 bid, 64.5 offered Tuesday from Friday's 61 bid, 64 offered. The trader also saw American Airlines parent AMR Corp.'s 9.73% notes due 2014 at 53 bid, although he thought this was around the credit's recent levels anyway. He saw no activity in any of the other AMR bonds, including its more widely traded 9% notes due 2012.

A trader said French media giant Vivendi Universal's bonds "had a nice bid to them" in the wake of the news that Vivendi will enter exclusive negotiations with General Electric's NBC broadcasting unit to merge its U.S. entertainment with NBC, creating a new company 20% owned by Vivendi and 80% by the Peacock Network .

But while that news helped bid the Vivendi bonds up - with its 6¼% notes due 2008 firming to 100.5 bid, 102 from last week's levels around 99 bid, par offered, while its 9¼% notes were a point-and-a-half better on the bid side, at 112.5 bid, 114 offered - the trader said he hadn't really seen them trading around.

Indeed, he said, while things "got busy at the end of the day because things sold off a little after levels got too high" in the morning, when everyone was all excited about the massive inflow number, not that much ended up having been done by day's end.

"People are going to wait for the months' end performance [statistics] before they decide what they want to do about the inflows. Fuel was NOT being dumped on the fire on Tuesday. Everyone is waiting for a clearer picture of what's going on."

(Ronda Fears contributed to this report)

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